New equipment orders from lessors, railroads and shippers are giving railcar suppliers reason to celebrate for the first time since the Great Recession settled in two years ago.
The increase in business comes at a critical moment. With a huge overhang of idled railcars parked during the recession and slow to return to work during the recovery, equipment builders were among the last companies in the freight transportation industry to see business recover.
For them, 2010 has been worse even than 2009 when the Great Recession hit bottom, and most suppliers have diversified their revenue streams into repair operations, fleet management or building other types of products.
|Now, some of them see enough green shoots in new orders to say their equipment recession has ended, too.
Greenbrier, which usually builds more than half of all new intermodal well cars that carry containers on North America’s railroads, already has taken more orders for those cars in the two-plus months of fiscal 2011 than it delivered in all of fiscal 2010.
For car builders, deliveries are crucial because that’s when they take payment. Greenbrier delivered 2,500 railcars of all types in the past year, down from 3,700 in fiscal 2009. But for fiscal 2011 that began Sept. 1, “we’re targeting something substantially in excess of 7,000,” said William A. Furman, president and CEO.
“There’s 7,000 we already have in firm backlog” for delivery this year, he told analysts Nov. 10. And railcar deliveries in fiscal 2011 could top the 7,300 units Greenbrier turned over to customers in fiscal 2008.
Greenbrier had a $7.7 million profit in its fiscal fourth quarter ending Aug. 31, up 26 percent from a year earlier, even though revenue fell 21 percent to $181.4 million. For the year, it posted net income of $4.3 million after a 2009 loss of $56.4 million.
The company has cut back on barge building, and officials say Greenbrier’s railcar wheel replacement and repair business has slowed, perhaps because so many idled railcars returning to service were initially tucked away in good condition.
The Association of American Railroads said car owners across North America had 318,275 cars of all types — 20.8 percent of the total fleet — in storage as of Nov. 1, after they pulled another 12,799 cars in October out of railyards and off sidings where they were parked. Industry sources say a small portion are scrapped when metal prices are strong enough, but by far most cars are taken out of storage for cargo service.
That October drawdown followed 17,638 cars taken off sidings in September and 10,759 in August. After a summer lull, those are the best numbers since last spring when the economic recovery was simmering.
Momentum in rail freight activity has some major companies upping their capital spending programs. Union Pacific Railroad officials, for example, told analysts on Nov. 4 they would boost UP’s capital budget 25 percent next year to $3.25 billion. They did not detail their planned railcar purchases; UP does not buy its own intermodal wells, but taps the TTX fleet pool.
Trinity Industries, another major car builder, reported a 36 percent jump in third quarter profit, despite a 3 percent drop in revenue to $540 million. During the quarter, Trinity received orders for new barges and for more than 2,000 new freight cars.
By The Numbers: Freight Cars in Storage.
But the rebound in equipment orders hasn’t spread evenly through the industry or among car types. Covered hoppers to haul surging grain shipments and domestic intermodal cars are in demand, but many car types are lagging.
American Railcar Industries, whose products include hopper, well and tank cars, took orders to build 640 new units. The company, which lost $6.3 million in the third quarter after earning $1.1 million a year earlier, has seen rising sales from car repair that helped slow the decline from last year in revenue from new car manufacturing.
“The railcar industry has begun to see a modest improvement in demand,” ARI President and CEO James Cowan said.
FreightCar America lost $4.7 million in the third quarter, compared to a $1.3 million loss in the second quarter and net income of $1.1 million in 2009’s third quarter.
FCA specializes in coal-hauling cars, and took new orders in the latest period to build just 17 railcars. Ed Whalen, president and CEO, said the order volume “reflects the continuation of challenging market conditions and resultant low level of demand for coal-carrying railcars,” along with “ongoing competitive price pressures.”
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